The FHA Delinquency Crisis: 1 in 6 Borrowers in Default
July 13, 2008 – 1:55 pmAt a time when borrowers, lenders, regulators, and lawmakers are scurrying for cover from the subprime lending crisis, a new crisis appears to be emerging with FHA.
Just take a look at FHA delinquency rates:
As you can see, FHA’s delinquency rate has been rising steadily since 2000-2001, and is now approaching critical levels. Consider that at 16.81% delinquency, more than 1 out of every 6 FHA single family borrowers are delinquent on their loan.
Now take a look of the current performance of FHA’s 10 largest servicers:
Surprisingly, 4 out of the 10 largest servicers have default rates exceeding 20% of their active servicing portfolios. This translates into 1 out of every 5 borrowers either being delinquent or in foreclosure.
Bear in mind that the above servicers account for 78% of FHA’s current portfolio and 80.57% of current delinquencies. However, these servicers are hardly the worst. For example, Washington Mutual Bank NA’s delinquency rate is slightly over 40% with a total default rate of 49% including foreclosures. That’s just shy of 1 out of every 2 borrowers at risk of losing their home. While subprime defaults have been blamed on risky loan products and practices, these are government insured loans.
Could FHA’s rising delinquency rate be due to FHA incorporating risky practices that have become standard in the mortgage industry? Since industry experts often cite 100% financing as being a major factor in the mortgage meltdown, let’s take a look at borrower down payment sources:
This chart breaks down the FHA purchase endorsements made in 2000 by down payment source. As you can see, in 2000, down payments were primarily borrower funded (76%) while non-profit agencies only provided down payment assistance on 2% of purchase loans. Of course, back in 2000, FHA’s delinquency rate was only 9.070%
Now, let’s fast forward to 2008 and revisit down payment source:
Wow. In 2008, borrower funded down payments declined 38% to total only 47% of endorsements while non-profit provided down payment assistance increased a whopping 1750% to 37% of purchase endorsements. These are staggering statistics, but could they possibly correlate with FHA’s delinquency rate? Let’s take a look.
The delinquency rate clearly rises in tandem with the increase in non-profit funded down payments. But why would down payment assistance from non-profit agencies possibly impact the delinquency rate so materially?
While legitimate non-profit agencies provide much needed assistance to deserving buyers in a manner that promotes successful homeownership, certain so-called “non-profit” agencies merely advance the borrower the down payment from the seller for a fee. Companies such as Nehemiah Corporation of America, H.A.R.T. and Ameridream are prime examples of companies that provide down payments that are dependent upon seller reimbursement. Since the down payment is seller funded, whether directly or indirectly, a Quid Pro Quo clearly exists. Furthermore, because sales prices are increased to absorb the down payment grant, down payment assistance is said to skew prices for everyone.
In 2005, HUD commissioned a study entitled “An Examination of Downpayment Gift Programs Administered By Non-Profit Organizations”. Later that year, another report titled “Mortgage Financing: Additional Action Needed to Manage Risks of FHA-Insured Loans with Down Payment Assistance” was completed by the U.S. Government Accountability Office. Both studies concluded that seller funded down payment assistance increased the cost of homeownership and real estate prices in addition to maintaining a substantially higher delinquency and default rate.
In 2006, the IRS issued a ruling that non-profit agencies that provide seller-funded assistance no longer qualify as tax exempt charities. Additionally, seller’s DPA ‘charitable contributions’ are not tax deductible except for possibly as a sale expense.
As a result of escalating delinquency issues, FHA has been fighting to terminate the practice of seller funded down payment grants. FHA Commissioner, Brian Montgomery, has been applauded for reissuing a proposed rule that would eliminate this type of seller funded down payment assistance and reopening the matter to public comment.
The “non-profits” that administer these types of programs have responded with nothing short of outrage which is understandable considering the hundreds of millions of dollars in fees that these programs generate.
In addition to the exponential rise in down payment assistance, another big change to FHA over the last decade has been an increased reliance on automated underwriting systems (AUS) and the development of FHA TOTAL Scorecard. While automated underwriting and credit scoring has simplified the FHA loan process, the simplification may have come at the high cost of quality as AUS systems routinely provide approval recommendations on loans that do not meet FHA guidelines. Often times, the recommendations are patently unsound as previously reported and documented on this blog.
Just as seller funded DPAs increased from 2000 forward, automated underwriting has also gained in prevalence during this time frame making it difficult to discern whether the escalating delinquency rate is due to increased DPAs, automated underwriting or a combination of both.
Perhaps we can garner a clue from FHA data on the percentage of single family endorsements that used AUS or TOTAL Scorecard for underwriting.
What do you know? Use of AUS and TOTAL Scorecard has increased almost in tandem with rising delinquency rates and seller-funded DPAs.
It appears we may have a tie:
While a rising delinquency rate may not seem that important to the average citizen and even most industry professionals, it is a signal of growing distress that threatens the future of mortgage lending. Because the program cannot sustain infinite losses, eventually the pendulum of risk will swing in the opposite direction which inevitably results in excessively tight and extraordinarily expensive credit.
Furthermore, irresponsible program management proliferates irresponsible lending which we all know is already costing the taxpayers billions through various institution and homeowner bailouts. Considering that FHA Commissioner Montgomery projected that the program will need a credit subsidy in excess of 4 billion to start fiscal 2009, how much a burden on taxpayers is too much?
This is your FHA wake up call.
46 Responses to “The FHA Delinquency Crisis: 1 in 6 Borrowers in Default”
awesome work.
By Mr Mortgage on Jul 16, 2008
Thank you for an excellent post. Hard to believe this is still going on with FHA, considering what has happened with subprime and Alt-A no down payment loans.
By NomadGuy on Jul 21, 2008
Thank you Mr Mortgage and NomadGuy. Unfortunately, irresponsible lending results are the same whether the loan has a subprime label or government stamp. Needless to say, Brian Montgomery has his hands full.
By Do_the_math on Jul 21, 2008
Brokers and LO’s will take the path of least resistance to make a buck. I started in this business as an AE with a lender that did govies. It was hard to get approved to do FHA.
You had to know what you were doing. Now every
clunk with a computer is saying “FHA is the new Sub-Prime and we can make more money!”
The key is licensing the individual LO’S!
If they are not professional and have only two buttons on their shirts and they are both on their sleaves! Get them out of the business. Remember! Cologne is not a bath!
By FormerAE on Jul 22, 2008
As with most media you take statistics and misuse to scare peole and make a big headline. You fail to mention that approx 60% of those in default are just ONE month behind and I don’t think that makes them about to lose thier house. Currct default are up at FHA to around 6% which is 1 in 17.
By real numbers on Jul 22, 2008
Excellent article, send this off to Sen. Chris Dodd, maybe he can understand it in this simple terms. Actually send it to every one of our congressmen and senators, they all need the wake up call. Now is the time to stop helping the banks and let the chips fall where they might.
By JOHN on Jul 22, 2008
Well sritten article. I do a lot of FHA loans and I believe the economy and rising gas prices are putting the pinch on FHA borrowers. It would be interesting to see how many of the borrowers in default were approved as a manual underwrite versus an AUS approval. My gut would say more of these defaults are manually underwritten files. Lenders are already making several changes in allowing seller paid DPA with minimum FICO score requirements as one example. The capitalistic system works and chnages are already underway even though FHA may not modify their rules.
By D. Brady on Jul 22, 2008
Real Numbers:
As of June 30, 2008, 30 day delinquencies account for 46.660% of total delinquencies, 60 day delinquencies account for 16.898%, and 36.442% of FHA delinquencies are 90 days late or greater. FHA’s delinquency rate increased to 17.06% in June from 16.81% in May. The current combined delinquency and default rate is 18.56%.
The FHA default rate is deceiving and difficult to ascertain, however, the serious delinquency rate (90 days +) is 6.218%, and the 60+ delinquency rate is 9.101% as of June 30, 2008.
FHA’s claim rate is unreliable because FHA is absolutely buried in claims.
In case you haven’t noticed, I am not “media”. I am a mortgage and real estate professional who is tired of watching the industry run into the ground. I started processing FHAs loans manually 20 years ago, and I was taught to do so by a DE Underwriter. Since then, I have seen the program and the economy go through drastic changes. Some good, some bad. Lately, mostly an unhealthy emulation of the same mistakes made by the same players that created this debacle.
So when I take a look at FHA delinquency and current default data, and discover a high delinquency rate that is rising, you can expect me to make as many people aware of it as possible. This is not something to be ignored.
John, I believe some of the statistics are included in the latest petition in the Ticker Forum, so its likely that Dodd’s office will be aware of the rising delinquency rate. Of course, Commissioner Montgomery has already warned about the impact of seller funded down payment assistance.
By Do_the_math on Jul 22, 2008
Interesting Article. You have to remember that it’s not the broker approving the loan it’s the Bank and because each Bank has different standards you have Banks with different default ratios. FHA has a lot of gray areas and for this reason one Bank may also have a higher default than another. Also, we should be thankful for FHA because without it the housing industry would be worse off than it already is. FHA has not changed much over the years the only reason everyone is doing it now and calling it the new subprime is because they were not smart enough or too lazy to put their client in an FHA loan instead of a subprime loan.
By Joe on Jul 22, 2008
I would like someone to really take a minute and look at when the Mortgage Industry took the responsibility of Approving Loans out of the hands of a Live Underwriter’s and gave that decision to AUS called LP and DU. Now compare that to when everything REALLY started going upside down. Wake Up People….Computers cannot make decisions that a Live Person can make. Let’s get back to Ratios, Assets, DTI’s and Job Stability and the documentation to go with it. Today I still see DU/Do and LP Approve a fixed income with a DTI of 65% because they have good credit and some money in the bank. Hello! by the time you add in utility bills, grocries, gas and everything else…you cannot make ends meet! Let’s Wake UP Fannie & Freddie and get REAL!!
By Denise on Jul 22, 2008
Amen, Denise!!
By SoCalGal on Jul 22, 2008
The old fashion way of underwriting needs to come back which will eliminate a lot of the default problems we are seeing now–loans should be reviewed by a live experienced underwriter.
By Manju
By Manjushri Banerjee on Jul 22, 2008
I have to agree with Denise too! No way a computer can assess risk!
The mortgage industry also needs to do a way with the large commissions that everyone was paid and go back to being paid a decent salary for your skills. What happened to the days when underwriters were like GOD…what they said went. Not too metion get rid of the bigs wigs who over road evey decision an underwriter gave for a bonus. This whole mess was created by lots of GREED!
By Tania on Jul 22, 2008
Wow, finally people that understand the real problem. I started in the loan business in 1990, things where sure different back then. Most people bought a house because they could afford it. sure so pushed the ratios using co-signers, but default rates back then were about 3% not the high teen. I left the business for awhile in early 2000, when I came back in 2004 I could not believe the junk that was getting approved. I was turning down deal because there was no possible way for the buyer to make the payment, but they just went somewhere else and got the financing anyway. I wonder if those buyers still have their homes? most likey….NOT
By gabriel on Jul 22, 2008
Scary stuff. I’ considering banking at First American Sox Drawer! One wonders just how bad the whole mess will get, but perhaps we will all learn the perilous nature of letting a government get involved inindustry. Especially financial industries.
By Paul the Cab Driver on Jul 22, 2008
Well written piece.
I am curious, though. The defaults you are elevating are of recent vintage – 2 years and less.
What is the rate of default for the entire FHA book?
By steve on Jul 23, 2008
That was an interesting and useful compilation of facts.
It is probably useful to add that the delinquencies most closely correlate to property value decreases, which then increase property value decreases.
It’s going to be tough to use FHA to rescue this mess. Hate to see it ruined also!
By Roger Ingalls on Jul 23, 2008
I beleive that the down payment assistant programs are not to blame for what has happened! We need to do everything that we can to assure people can get assistance with money for closing when family and others cannot provide it. My opinion is the reason you see such a rise is because when everything was not falling down the tubes in value, there where some hefty down payments to be made. There are alot of households who can own a home and make a payment but just do not have thousands of dollars for the down payment. We (mortgage people) just need to get these people in the right products and advise them when they are trying to buy more than they can handle. If you are making a $800 rent each month with no problem why double it and make a house payment for $1600 at Interest Only or Short Term Adj Rate with no escrows…..What are we doing out there! I say we all need to pass a test and get a license to work in the mortgage industry!
By Denise on Jul 23, 2008
Guys lets get real! In order to be fair and to take out bias a computer must do it. Otherwise banks will run numbers on ethnicity, age, dependants, and zip codes to decide where and who to lend to! If you are using the government money it has to be fair to all! The numbers above are completely misleading so i wont even mention them. As far as delinquent mortgages go, companies are downsizing, stocks are plummetting, rates are rising,gas is rising, food is rising, everyday life is more expensive. Considering that less than 10% save money for retirement on thier own, the last lifeline they have is there house. If you take away the ability to borrow money from the people that need it the most, you have just hastened our march towards a recession. It is not the broker who caused the mess. We simply met a need in the market. The companies who got screwed should not have gotten bailed out. They should have failed, that is the only way to learn a hard lesson.
By joe on Jul 23, 2008
Any one that thinks the DPA’s are to blame is narrow minded and has not been paying attention to what is happening in with the rest of the economy.
In the past people got the “gift” from family members and then paid them back on the side. They received a “gift” from their employer and then paid it back out of their pay check for as many as 5 years. They borrowed against a 401K and paid it bask for 10+ years. What is the difference other than the payment on 7-10 thousand dollars is much higher when it is paid back over the short term rather than 30 years.
No one has even mentioned the USDA rural development program that finances 100% of the purchase price, then puts a 2% fee on top of that and then you can roll all the closing costs on top again. That can total up to 8% above the sales price, with out any Mortgage Insurance!!!
FHA loans with our without a “gift” are here to stay. People will always find a way to get around the guidelines. There are already questionable “earned income” ways to get your customer the down payment required. These programs have been dreamed up by several of the current DPA’s.
The recent changes to risk based pricing of the funding fee and the monthly MI fees are a step in the right direction. Let’s let them take effect and see if they help liquidity before we make any rash decisions. We are in an economy wide down turn and making rash decisions based on skewed statistics is always a bad idea. We may want to look at leadership at FHA rather than look where he is pointing. In many cases the best defense is a good offence.
If FHA truly wants to get rid of the 3% seller funded DPA’s then they should increase the funding fee to 3%+ and have the program mirror VA. With VA you can finance 100% and the funding fee is 2.15% for the first use and then over 3% for all uses after that. Since the customer is now paying anywhere form 1.25% – 2.25% for the up front FHA funding fee and we are raising the price 3% that is a total of 4.25% – 5.25%. It seems to me that a 3% fee is better for FHA and the customer at the same time. Not to mention that the payment only changes $6.32 per month for every $1000 financed over 30 years.
Lets get all the facts and look for solutions that will benefit the institution as well as the consumer which will have a positive effect on the economy and then every one will be happy. (in their own home)
By Leighton on Jul 24, 2008
DPA’s are not solely to blame but they certainly contribute immensely to the problem defaulting at 3 times the rate of other FHA’s which already are defaulting at a higher rate.
The sales price has to be increased by the seller to cover the DPA plus the fee thereby artificially bumping up values and distorting market prices. Without the seller DPA the price is lower isn’t it? It’s not hard to understand. Also, most of the time the seller is funding closing costs because the buyer doesn’t have that either so the price is getting bumped up even more.
When the seller is funding the down payment plus funding closing costs plus funding points on top of more points to fill the broker’s wallet, and all coming from the seller from a price increase isn’t that distorting the sales price? Am I wrong?
By itiswhatitis on Jul 24, 2008
The entire housing market is experiencing a correction. Do away with Mortgage Brokers and give it back to Mortgage Bankers. Get the Realtors out of lending. Regulate profitability on loans. Get it back to safe lending practices, integrity in lending and just plain “doing the right thing”. I love what I do. But I don’t take advantage of someone’s inexperience to make as much money as possible on them. Fair Lending, RESPA, TILA – what a force it has been. The gov should look at the BROKERS. Simple and true. Then take a look at the partnerships that have been created between realtors and brokers and see what they are building: channeling customers to mortgage brokers that have an interest in their real estate company. it’s a breeding pond for more abuse.
By Reinedeer on Jul 24, 2008
Say goodbye to DO and LP!
By Brad on Jul 31, 2008
Sellers never had to raise the price in order to accomodate Down Payment assistance deals. The alternative would be to just say no or negotiate a compromise between the list price and what the buyer can actually afford to bring to the table. We have been counseling DAP borrower for years with this same advice. I lost a great many deals because of this but i never believed that there was any other way to market Down Payment Assistance. Guess i was right.
By cooper on Aug 1, 2008
How about everyone (lenders, brokers, realtors, builders, borrowers, and anyone else in between) just point their fingers at each other and blame one another for the mortgage meltdown. Yeah that will fix everything and make it all better, right? The best is that everyone thinks the brokers are to blame! Why? Because they did a loan through a bank that had a program that fit their customers scenario? How is that the brokers fault?
By TDW on Aug 4, 2008
The person who is blaming the Brokers is being narrow-minded. I am not a Broker, however have been in the Mortgage business for 25 years and seen all of the roller coaster rides and changes. You can not pin it on one group alone – we are all guilty in letting it get out of control – starting with WallStreet making it so appealing to the lenders to buy Subprime and funky programs – paying more than 4x’s what they would pay for a nice clean fnma loan. And I also agree with Do/LP not being the solution and being more of the problem as well as credit scoring – how many times did you see a 730 score without any credit depth?
Realtors pushed the prices, so the 100% loans got out of control and people did not want to pay their mortgages on the properties they were flipping when they were no longer worth even the mortgage amounts – then the media made it worse then ever teaching people how to foreclose and over-exaggerating the Mortgage problems – freaking out investors who pulled the liquidity out.
Now we are stuck falling over ourselves righting the wrongs. The only problem is many innocent people were hurt by loosing their jobs and everyone pitties the poor borrower who never should have baught a house they could not afford, or blames each other.
By discusted on Aug 9, 2008
You have some good information, and some INACCURATE information here. I’ve been following the recent crisis with the Seller-Funded Downpayment Assistance industry and have come across a few extremely informative websites that accurately portray the issues. Nehemiah’s http://www.DPAGroundSwell.org and a video posted on YouTube “The Facts about DPA: HUD Publically Admits It Mismanaged FHA” http://www.youtube.com/watch?v=g2CLQABK are both highly enlightening. I recommend you all check them out. Downpayment Assistance is such a great concept for single moms like me with a good job but no fat savings account. We cannot let this vital program disappear when it has helped so many deserving families. I’ve written my letters to Congress and encourage everyone to do so! Get informed … Save DPA!
By Marie on Sep 4, 2008
I agree that the information is inaccurate in that it UNDERSTATES the problem. Seller funded DPAs do not help buyers, the real estate market, and the economy. They generates hundreds of millions for the so-called “nonprofits” (which I have investigated extensively), and millions in lobbyist dollars. SFDPA’s create real estate inflation which in turn increases the monthly expenses and down payment for most buyers, especially entry level buyers. Perhaps if inflation wasn’t so high, you might be able to save up for a reasonable down payment and reserves.
Furthermore, the programs do nothing to prepare borrowers for ownership or protection from predatory lending which creates even further risk to the FHA program. I have checked out the so-called “education” provided on the various SFDPAs sites, and the nicest thing I can say about the so-called education is that it is that it is deficient at best. The education completion certificates are worthless in that they can be generated in less than a minute with little to no effort. The agencies must be too busy diverting funds to various “profit” organizations and projects (as well as to lobbyists) that they probably ran out of time and money to produce educational programs of any substance.
I suggest that if these companies and agencies goals were to promote sustainable ownership, they would devote the time and resources to creating meaningful pre-purchase counseling, and not a “if the cash is there, we don’t care” policy.
Without going into the various agencies, individuals, and scams, what part of the seller providing the down payment to the borrower through an intermediary who is paid a fee, isn’t a scam? The IRS says its a scam, HUD says its a scam, and my own ears and eyes say its a scam.
With all due respect, I recommend that instead of relying on self-interested agencies for information, that you actually mine through the data yourself. This includes hundreds of pages of reports (from the GAO, HUD, and private organizations), the 990s for the so-called non profits for the last several years, business filings of profit and non profit entities held by the non profits as well as other business ventures, and the backgrounds of various individuals and officers. Then take a look at the various court cases and self-interests of the various individuals and entities.
When you are done doing that, I suggest you further mine through volumes of FHA performance data and annual reports on the insurance funds, statistical market data in areas where SFDPAs are prevalent, proposed and final rules that are published in the Federal Register, the actual cases involving the injunction, various mortgagee letters, the 4155.1 REV 5, the Code of Federal Regulations and the National Housing Act.
If you want to talk to me about getting informed, be informed- and not with propaganda.
By Do_the_math on Sep 4, 2008
First of all, shame on you for changing the web links in my post. It is groundswell not groundsmell. A bit narcissistic of you to not allow others to have access to valid information – only your information.
As for your statement “The IRS says its a scam” = INACCURATE! According to Nehemiah’s website “ … hereby confirms that the tax-exempt status of NCA as an organization described in Internal Revenue Code section 501(c)(3) presently is in effect. NCA has a determination letter as to its exempt status from the IRS dated January 16, 1998.”
As for HUD, well, where do I begin? Even though HUD has made attempts to eliminate downpayment assistance, they have failed. “On March 3, 2008, Judge Lawrence K. Karlton of the United States District Court for the Eastern District of California upheld Nehemiah’s motion for summary judgment and ruled AGAINST a Department of Housing and Urban Development (HUD) rule to ban private downpayment assistance as proposed in the “Standards for Mortgagor’s Investment in Mortgaged Property” regulation published October 1, 2007.”
There is a fabulous excerpt from a similar court case with HUD and AmeriDream on their website: U.S. District Court Judge Paul L. Freidman yesterday invalidated the U.S. Department of Housing and Urban Development’s October 1, 2007 regulation prohibiting seller-funded downpayment assistance. The judge found that: “plaintiff’s have set forth plausible reasons for doubting the accuracy of HUD’s loan data … no records were kept identifying the funding source for any downpayment assistance for several years of the period HUD purportedly analyzed … The problem with HUD’s explanation is not that it lacks a sufficient number of citations; the problem with HUD’s explanation is that it explicitly (and inexplicably) relies on sources that do not support its conclusions. As a result, this Court is unable to conclude that HUD engaged in ‘a course of reasoned decision making.’ … The Court concludes that HUD’s explanation of the Final Rule reflects a lack of reasoned decision making and therefore violates the APA. … Those infirmities inspire a good deal of doubt as to ‘whether the agency chose correctly.’ ” [ Case 1:07-cv-01752-PLF, pg. 18-19]
Furthermore, please read the transcript or watch the video from the Hearing before the Subcommittee on Housing and Community Opportunity of the Committee on Financial Services U.S. House of Representatives One Hundred Tenth Congress First Session June, 22, 2007. I would gladly post a direct link, but I’m certain you’ll alter that as you did my others. So feel free to find it yourself online. The Honorable Maxine Waters, Chairwoman of the Committee, said she felt “duped” by HUD. In short, HUD admits to their wrongs and is slammed by Congress … it is a fascinating hearing.
By Marie on Sep 5, 2008
First off, shame on you for coming to my blog from Nehemiah, and pretending to be a single mother and not the Nehemiah organization member that you truly are. If you try to spread propaganda in that manner again, you can bet I will edit your links or delete the comment in its entirety.
In regard to your statement that my “IRS says it is scam” comment is inaccurate, I submit that you are correct in this matter. The IRS actually called it a “scheme” in their May 4th 2006 press release regarding the IRS ruling that seller funded down payment assistance does not qualify as tax exempt.
Click here to view release. Excerpt from IRS Press Release:
Nehemiah’s 1998 IRS letter that is posted to their website does not mean that Nehemiah is approved for seller funded down payment assistance and the IRS does not approve of the activity. Furthermore, the Nehemiah website admits the seller contribution is not tax deductible:
Excerpt:
In regard to your suggestion to peruse the Nehemiah and Ameridream websites to review court case excerpts, I actually prefer to pull up the actual cases on Pacer, download the complete case documents and read them for myself. This is why I know that the issue regarding the injunction on HUDs final rule which changed the CFR code to eliminate seller funded DPAs was due to procedural rule making issues pertaining to the Administrative Procedures Act. There was no ruling of legality of seller funded down payment grants, but moreover, the matter was remanded back to HUD who addressed the courts concerns when when they republished the proposed rule and reopened the comment period including additional studies and reports.
In regard to what Maxine Waters has to say about SFDPA and being duped by HUD, I am not surprised for one minute that she would side with SFDPAs considering that her bread is buttered by the SFDPA providers and the industries that benefit from them. Forgive me if I don’t derive my opinions from the statements of individuals who are in the pocket of the seller funded DPAs and receive thousands of dollars in contributions from the agencies, their employees, and PACs, and instead prefer to rely upon facts produced via independent research. I suggest you try it as it makes for fascinating reading.
Since you work for Nehemiah, perhaps you can tell us about the loans to for profit organizations that Nehemiah officers are members and/or managing partners and their development ventures involving Prop 1C funds or when they plan on filing their 2006 990s? Now that would be interesting.
By Do_the_math on Sep 5, 2008
As a matter of fact, I am a single mother and I do not work for Nehemiah.
Your attempts to engage me in a pissing contest will not work.
By Marie on Sep 5, 2008
Marie, I apologize if the Nehemiah URL that showed on the comment notification along with the parroting of Nehemiah propaganda confused me.
While I sympathize with your status as a single mother, it doesn’t justify continuing seller funded down payment schemes to the detriment of FHA and economy. Perhaps a better course of action would be to apply for legitimate down payment assistance through a bona fide government agency or legitimate grant provider who sponsors a matching savings program. You might also want to attend budget counseling and work on saving for a down payment.
Consider this, if you can’t save for a down payment, how are you going to handle and increase to your housing expense and the financial commitment of maintaing a home? What do you do if the heater breaks, plumbing leaks, roof leaks, or the home needs other repairs? As a single mother, are you better off making your kid(s) a financial priority or renting from the bank? Are you really telling me that you have absolutely no hope of ever being able to save a down payment or performing other type of sweat equity?
In regard to your accusation that I am attempting to engage you in a “pissing contest”, please note that I am not attempting to engage you in any contest, let alone one that involves “pissing”. I am engaging you on facts, and asking you to bring something other than pre-processed obfuscation to the table.
By Do_the_math on Sep 5, 2008
To answer your questions about my financial status as a single mother, your assumptions that I do not know how to handle my finances and “have absolutely no hope of ever being able to save a down payment”, your suggestion for budget counseling, etc … let me just say this … I am financially sound and manage very well. As a matter of fact, I did not use DPA to purchase my first three homes. I used a downpayment gift from my family for the first home when I was in my early twenties, and then used the equity from that home to put a down on the 2nd home and the equity from the 2nd home to put a down on the 3rd home. However, with the huge drop in my current home’s value … I will lose all the money I put down plus more due to the fact that I must relocate and sell before the market picks back up. When I am forced to sell and give the bank all my savings, I will not have a down for my next home. Therefore, I started looking into downpayment assistance. I learned about Nehemiah and am very excited that they can help me IF they are still around when I need them.
Again, I do not work for Nehemiah. I use their URL because I am a strong believer in their program. You’ll notice I also provided some info from AmeriDream as well. Both programs are genuine and helpful to many American families. I was hoping to use your “forum” to share some information that you and the other commenters did not post. It’s always helpful for folks to hear both sides of the story.
Now that you know way more than you should about my personal life, please stop the personal attacks on me. Allow folks to post comments on your site without attacking them. Just because people do not agree with everything you post – that does not make them wrong. However, with your foul attitude, I will no longer be visiting your site.
Have a nice day and good luck with your future real estate endeavors.
By Marie on Sep 8, 2008
Marie, please reread my comment. I was asking you if you thought you had no hope of ever being able to save a down payment, and was not implying that you are in anyway hopeless.
Since you are facing a loss on your current residence, I encourage you to seek professional assistance for help in completing a short sale and to protect your assets and credit. Is there a possibility that you might rent out your property or have a buyer assume your existing loan rather incur the cost of sale? Worst case scenario, you might want to carry back a low interest rate loan in lieu of forking over all your personal savings (especially with a family to support). Depending on credit, in the event you can’t sell short, please see an attorney and do not walk away. This right here is why the fundamentals are so important. If market fundamentals were adhered to, you would not be in a home that you could not rent out and retain as an investment rather than take a loss. As a rule of thumb, your home shouldn’t be over 2.5 to 3 times your annual income. Furthermore, the comparative cost of rents shouldn’t be significantly out of proportion to ownership costs.
Needless to say, you have had 3 opportunities for home ownership, none of which required you to save. That of course, does not diminish your commitment or sacrifice, but it unreasonable for you to expect other borrowers who saved their down payment to accept higher mortgage insurance premiums, higher homes prices, and tighter lending guidelines just so borrowers can bypass saving for a down payment. Also consider that grants of these nature result in higher prices due the addition of the down payment and grant processing fees to the sales price. While 3% to 5% addition to the sales price might not seem like much to you, it adds up over time and drives up prices for everyone.
These programs are a scam. No matter how much lipstick you put on the pig, at the end of the day- you still have a pig wearing lipstick.
The non profits which you speak do not promote responsible, sustainable homeownership- they promote fees. Furthermore, practically every single seller funded down payment provider that I have looked closely at has questionable items on their 990s and/or questionable relationships between their officers and for profit entities owned or affiliated with the charities or their officers. These same entities have the nerve to sue HUD, costing the taxpayers a bundle, just because they refuse to accept the fact that HUD and the IRS recognize their scam and don’t want to play. These agencies have abused the opportunity to truly serve the public and real estate community by failing to adequately prepare and protect buyers. Many buyers get stuck in overpriced homes they can’t afford due to the agencies failure to look out for the best interest of the buyer/borrower. That includes making sure the borrower can qualify for the loan, has completed meaningful counseling, and is not being subjected to predatory lending abuse. At a minimum, they should review disclosures or at least put limits on fees in order to protect the borrowers.
While you may think this is the forum to promote these irresponsible programs, I can assure you it is not. This site isn’t supposed to give you you the warm and fuzzies, but moreover, to blow the whistle on scams and industry abuse. If you want to say that a pig is chicken and expect me to agree for the sake of getting along, you’ve got the wrong blog. However, if you want to intelligently discuss facts (and not propaganda), I am more than happy to accommodate you. Feel free to post links to entire reports and not just excerpts that are selected by “non-profits” with millions at stake,
By Do_the_math on Sep 9, 2008
Dear Doer of Math,
With regard to your post:
In regard to your statement that my “IRS says it is scam” comment is inaccurate, I submit that you are correct in this matter. The IRS actually called it a “scheme” in their May 4th 2006 press release regarding the IRS ruling that seller funded down payment assistance does not qualify as tax exempt.
————
Please do not submit to the alleged single mom “Marie” for we all know the character of the DPA evildoers; Invision, Synergistic etc. ad nauseum. Oh yes, excuse me, you may know them as Nehemiah, Ameridream etc.
I would like to offer that yes indeed you were correct the IRS did call it a scam. Remember, the title of the IRS press release:
“IRS Targets Down-Payment-Assistance Scams; Seller-Funded Programs Do Not Qualify As Tax Exempt”
http://www.irs.gov/newsroom/article/0,,id=156675,00.html
Yes, yes; SCAM! Oh, vindication is sweet. Evildoers run for the cracks and crevices; justice will be served. Remember, Mark Twain said, “A lie can travel halfway around the world while the truth is putting on its shoes.”
SHHH! I hear footsteps.
By Winston Smith on Sep 11, 2008
Hi there again, , , So, do you guys think that a net worth of $63,000.00 makes you more ethical?? I was just at my mortgage brokers conference with all of my collegues. . and our state is going to stop all the net branching and fight for us to have a higher bond. . not stop writing loans that will benefit our client. . but help our repeat
2/28 clients to a rate and term re-fi. . your thought???
By Angela on Oct 6, 2008
Let me get this straight, your state’s solution is bond around insolvency rather than work for a legitimate FHA company? You speak of ethics but you apparently had no problem putting borrowers in 2/28 loans?
Your firm is insolvent and yet you want to ORIGINATE and PROCESS and to collect YSP on loans for people who you put into such bad loans that they need to refinance out of them????
At what point did it occur to you that the market wasn’t going to keep appreciating and that the 2/28’s were a bad program?
While I am all for borrower representation and borrower AGENTs having access to FHA in a hands-off capacity, I will continue to speak out against legislators that attempt to circumvent FHA approval requirements so that unregulated brokers can use FHA as their subprime replacement.
Frankly, I am shocked at your sense of entitlement.
By Do the math on Oct 6, 2008
Hello Do the math!! Well I have been putting my 2 cents on your blog too!! much like your gal Maria. . A little insensitive aren’t you? Business not going good for you? Let me tell you something about insolvent! I have a very good reputation in my town (65,000) & (150,000 in the county) and have been in business for 17 tears and approx. 3-4 repeat clients or referrall’s come in my door
every week. People have faith in me and if you would like to take a look at how I price my loans. . . please . . most my files are at par!! I pay for my lock extentions for my client’s if I run over time. . .How do you explain someone with my reputation bad for putting someone in a 2/28?? Do you ever right an option arm?? I have never!!!! These are good people with full time jobs w-2 full doc!!! and currently have demonstrated paying their bills on time. . maybe “may” have had a medical collection account that is now paid and their family is healthy now and they are on the right track!! Do you think it’s wrong to allow someone into a house that a few dings in the past?? (oh, , yeah that’s the new FHA)and now they are on the right track and pay execellent now?? You must be a banker!! Sorry to say that broker’s beat your rate and fees on a contant basis!! Insolvent!!! I have $225,000.00 equity in my home I also have a rental property for sale finally after the title company did a deed overlay and consiquently had to wait for that to clear before putting it back on the market and almost loosing 8 months on market time. So, again, , let me ask you??? Does $63,000.00 make you ethical?? I suppose if you have that kind of money in the bank and your the broker/owner and have only 2 full time employees and one originator (again, you shouldn’t have to rip your client to show FHA the money in the bank you need to write another sub-prime loan. . LOL. . you know the new FHA!! Did you know that the net worth dones nothing cover the borrower?? and a Bond would??? I know you have been in the business for awhile. . but maybe you should read up on just what that net worth does or does not do!!! Ang
By Angela Adams on Oct 9, 2008
Actually Angela, I have to apologize to you for the last comment. It was rude and uncalled for. Unlike Maria, whose email information identified her as being with Nehemiah, your comments and opinions are welcome. I do not alter your posts or censor you in any way.
With that said, I am not a fan of 2/28s, and have seen several shops that specialized in those types of loans (along with POAs). The fact that these loans were not as bad as POAs does not make them good loans. And yes, I have done a few of them and can count how many on my hands. However, I can count on both hands plus my feet, plus the hands and feet of two other persons the many times I did not do a 2/28 and did a government or agency loan instead (or talked them out of doing a loan or at least waiting).
As such, it is my opinion that just because you cite the need to refinance your borrowers out of the loan that you put them in, does not entitle you to carte blanche with the FHA program.
As to your question regarding whether $63,000 makes a company more ethical, I assumed that was a rhetorical question and did not realize you wanted an answer. In fact, its hard to use the word ethical and any sum of money in the same sentence without creating an oxymoron.
However, to answer your question, the very issue of net worth is due to the presumption of a potential lapse in ethics and/or probability of error. Since you really want my opinion, I think minimum net worth should be increased to the maximum FHA loan amount for the area (which the highest limit prevailing if broker has operations in other areas), a bond should be required, and YSP should not be credited to the broker. It is also my opinion that brokers should be required to disclose their relationship to a borrower, and if the broker does not owe the borrower a fiduciary duty, the borrower should be able to obtain their own broker to represent the borrower’s interests. Furthermore, I think the whole model of brokers originating and processing loans and making up to 5% of the loan amount (including YSP) is a failed model which is in desperate need of revision.
In regard to net worth, personal assets are personal assets. Sorry, but you have to transfer the asset to the corporation to use it in your company’s net worth. Personal assets don’t do any good if held outside the corp. Also, 20% of the company net worth has to be in cash or cash equivalent. The assets also can’t be lines of credit, loans, or mortgages held for sale, Since you have assets to liquidate, its sounds like your problem isn’t so much the net worth requirements as it is a beef with having to transfer your personal assets to your company to meet FHA standards.
Of course, if you don’t want to transfer personal assets to your corporation in order to qualify for correspondent approval, you can always go to work for another company or allow your company to be absorbed by another organization that is FHA approved, and become a W2 employee of that organization.
Apart from that, you can represent borrowers as an exclusive agent and be compensated directly from the borrower. While you won’t be able to process the loan or directly handle the borrower’s paper work, you would at least be compensated for initiating the loan for the borrower and acting as their agent to protect their interest in the transaction.
You are not entitled to any special concession, and it would be unreasonable to expect or demand otherwise.
I do, however, wish you luck and I hope that you get your FHA situation resolved quickly. I also hope that you are able to help your borrowers resolve their issues on their 2/28 loans and find FHA as a better loan tool.
My best wishes to you.
By Do the math on Oct 9, 2008
MAYBE SOME PEOPLE SHOULD BE RENTERS? Americans are forgetting that we should save money and have some reserves in case of emergencies. FHA and conventional lenders should all require the same down payment a min of 10%. Max DTI 45% It took a blood bath in real estate before the banks and feds made these changes today, so why not FHA?
By mayday on Dec 17, 2008